GOP and Fed agree, sort of

In an audacious move, a group of Republican congressional leaders — including House Speaker John Boehner, Majority Leader Eric Cantor and Senate Minority Leader Mitch McConnell — sent a letter to Federal Reserve Chairman Ben Bernanke yesterday, urging him to “resist further extraordinary intervention in the U.S. economy.”

Never mind that part of the Fed’s mandate is, essentially, to take the steps it sees necessary to stabilize the economy. And never mind that the entire structure of the Fed is designed to make it independent, so it can’t be influenced by the sort of partisan bickering that has gridlocked Washington, or for that matter, strong-arm tactics from lawmakers.

Of course, the lawmakers in question know Bernanke probably won’t listen to them, but it’s a politically calculated move. After all, few Americans really understand how the Fed works, and there’s lots of election year hay to be made from bashing it. Bernanke, meanwhile, has no one to blame for such grandstanding but himself. During his tenure, he has politicized the Fed more than his predecessors, and it was almost a certainty that he would face mounting political pressure from both parties as the economy struggles heading into an election year.

Ironically, though, the GOP and Bernanke are sort of on the same page. After the Fed’s meeting in Jackson Hole, Wyo., last month, he basically said there was little more than Fed could do to stimulate the economy. The problem, he argued, was a lack of fiscal policy initiatives, which need to come from the political leaders, including those who wrote the letter. Sure, the Fed may announce the “twist” — a swap of short-term securities for long-term ones — but that’s largely a Band-Aid. It’s not a recipe for long-term economic growth.

So, by telling Bernanke to do nothing, the lawmakers are basically saying the fix is up to them. Bernanke, it seems, agrees. So rather than writing letters for political show, maybe they should get to work.

The problems is the know-nothings in the Republican political leadership don’t believe that government has any role in the economy. Forgetting the lessons learned after the Great Depression, which resulted in policies that prevented another depression for over seventy years, they believe the “invisible hand” will keep everything right, and that there is no need for monetary or fiscal policy. Even more shortsighted, they are against doing what is in the long-term interest of the country, because their real interest is the short-term interest of their own party. They think keeping the economy weak over the next year gives the Republicans a better shot at taking back the White House in 2012. Americans should be outraged by their attempt to meddle with the Fed. They’re not, however, because most Americans know almost nothing about economics or history. In fact, many seem enthusiastic about a candidate (Rick Perry) who made a D in college Economics.

They also tend to believe that government intervention is the reason that the great depression lasted so long. If you’re interested in why they might or might not believe that, compare Britain’s great depression years to the US’s and their different political philosophies at the time.

The pendelum has swung the other way. Right now, government intervention is stagnating the economy, not stimulating it. Their continuing choices of losers and economic no-goes (pretty much every green program) has proved disasterous, shooting up the deficit as their favored companies go bankrupt. The high deficit and unstable environment has left businesses uncertain about what will happen in the future, and thus unwilling to invest in people or equipment to expand.

I completely agree with this. Bernanke has been pumping way too much money into the economy. The devaluation of the U.S. dollar has to stop. To have poor people starving is one thing, but when someone makes $50,000 a year and still can’t support their family… then you will truly be looking at revolution.

There are some of us out there who believe the government should have no role at all in macro economics. They think that the government should regulate certain industries for safety and protect us from violating each other’s rights. However, they believe that the concept that the government should somehow encourage the population into producing more goods and services is flawed.